The “installed base” of total iPhone users has all but stopped growing, according to Deutsche Bank.

This is the biggest problem Apple faces with the launch of iPhone 8, expected in September. The industry is expecting a complete refresh of the product with a radical new redesign, and a spectacular boost in sales as a result.

But the iPhone customer base is now so massive — around 650 million users — that Apple is having difficulty finding new users to buy phones. Growth of the installed base (total current users) is heading toward zero per cent annually.

The useful life of an iPhone is so long that individual users can typically make one last for three years before buying a new one. Everyone who wants a new iPhone now has one, basically, and the market for all types of smartphones is almost saturated, according to Deutsche Bank analyst Sherri Scribner.

You can see the ‘installed base’ growth problem in this chart:

Previously, Apple’s installed base had been regarded as a valuable asset. Every year, an increasing percentage of existing customers needs a new phone, and Apple almost automatically takes a huge chunk of that demand. Scribner’s analysis turns that on its head: The base is now so big it may not produce further growth. Apple may be at peak iPhone, in other words.

Scribner notes that other analysts expect 244 million new iPhones to be sold in fiscal-year 2018. That number can’t be right, Scribner argues:

“Based on our estimates, there will be roughly 228M iPhones ready for upgrade in FY-18. Assuming every one of these iPhones is upgraded to a new phone, and that Apple does not lose any customers to competitors, Apple would still not reach Street expectations for sales of 244M iPhones in FY-18, unless they were able to gain a substantial set of new customers. To hit these optimistic numbers, Apple would need to add roughly 15M new iPhone users. To put this in perspective, the smartphone market [as a whole] grew by 36M units in 2016 and is expected to grow by 44M units in 2017.”

In other words, 15 million new iPhone users represents 34% of all new smartphones sold in 2017. Historically, Apple only takes about 15% of all phone sales. It would now need to double that market share of new phones and not lose any existing customers in order to hit analysts’ expectations for iPhone 8 sales, Scribner says.

Really old iPhones don’t generate new iPhone sales

Part of the problem is that the installed base includes old iPhones that still work: units that are one, two or three years old, which are given to children, poor friends, or sold online. About 10% of all iPhone users are second-hand owners, the bank believes.

That percentage of second-hand phones is expected to grow as each new iPhone model comes onto the market, prompting owners to sell their old ones online or give them to family members, and charities.

The installed base looks as if it is showing a small amount iPhone sales growth until you take out all the second-hand iPhones, Scribner and her team argue:

People who own “secondary market” iPhones are not the same as iPhone customers, the Deutsche Bank team argue, because they are unlikely to buy a new iPhone. These are the people who take on old, second-hand phones because they can’t afford new ones. About 25% of iPhones end up recycling back onto the market with a new owner, according to data from IDC cited by Deutsche Bank.

When you take out the second-hand phones from the installed base, it suggests the number of people who might be expected to upgrade for iPhone 8 is smaller than others have assumed:

“Assuming 25% of the iPhones that are refreshed each year get sold as secondary phones suggests that about 10% of Apple’s current installed base is comprised of secondary phones. … we expect this number to continue to rise, as each new upgrade drives further iPhones into the secondary market. While these secondary phones increase Apple’s installed base, these secondary sales do not benefit Apple’s iPhone growth, as the sale goes through others.”

“… Cutting out secondary iPhones in the installed base suggests that the available number of phones that are candidates for a refresh to a new phone each year is close to 590M, not the full 650M installed base. Using a 3-year refresh cycle, suggests that only about 200M iPhone will upgrade each year, again, well below Street expectations for sales of 244M iPhones in FY-18.”

She concludes, “there just aren’t that many new customers to be had given the saturation of the market.”